| A | B |
|---|
| explicit costs | The monetary payment a firm must make to an outsider to obtain a resource |
| implicit costs | The monetary income a firm sacrifices when it uses a resource it owns rather than supplying the resource in the market; equal to what the resource could have earned in the best-paying alternative employment; includes a normal profit |
| economic profit | The total revenue of a firm less its economic costs (include explicit and implicit costs); also called "pure profit" and "above-normal profit" |
| short run | a period of time in which producers are able to change the quantities of some but not all of the resources they employ; a period in which some resources are fixed and some are variable |
| long run | a period of time long enough to enable producers of a product to change the quantities of all the resources they employ; period in which all resources and costs are variable and no resources or costs are fixed |
| total product | (TP) the total output of a particular good or service produced by a firm (or a group of firms or the entire economy) |
| marginal product | (MP) change in TP/change in labor input |
| average product | (AP) total product/units of labor |
| law of diminishing returns | as successive units of a variable resource are added to a fixed resource beyond some point the extra, or marginal, product that can be attributed to each additional unit of the variable resource will decline |
| fixed costs | those costs that in total do not vary with changes in output |
| variable costs | those costs that change with the level of output |
| total cost | the sum of fixed cost and variable cost at each level of output |
| average fixed cost | (AFC) TFC/Q |
| average variable cost | (AVC) TVC/Q |
| average total cost | (ATC) TC/Q |
| marginal cost | (MC) the extra, or additional, cost of producing one more unit of output; change in TC/change in Q |
| economies of scale | reductions in the average total cost of producing a product as th firm expands the size of plant (its output) in the long run; the economjies of mass production |
| diseconomies of scale | increases in the average total cost of producing a product as the firm expands the size of its plant (its output) in the long run |
| minimum efficient scale | (MES) the lowest level of output at which a firm can minimize long-run average total cost |
